BAe and Honda at odds over stake deal

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The Independent Online
A DISPUTE appears to have blown up between British Aerospace and Honda over whether the Japanese car manufacturer will be allowed to raise its shareholding in BAe's Rover car business.

Honda yesterday confirmed that it was in discussions about increasing its stake, currently 20 per cent. But BAe continued to play down prospects of an early deal.

A Honda official said: 'We are discussing measures to strengthen our business relationships with Rover, including our equity holding, although no decision has been reached so far.'

However, a BAe spokesman said: 'It is true we have a close relationship with Honda. But they are very satisfied with their shareholding. As far as any increase is concerned, that is entirely speculation.'

The apparent difference in tack has led to speculation that BAe is not ready to sell Honda a bigger stake in Rover or that it is not happy with the terms being offered by the Japanese.

The original share sale to Honda in 1990 valued Rover at pounds 520m, compared with the pounds 150m BAe paid for the business in 1988 and its book value now of pounds 1.3bn. Rover is thought to have made operating profits of about pounds 40m in 1993.

But Rover, and especially the Land-Rover arm of the business, has the potential to make significantly higher profits, which may tempt BAe to hold back and eventually float the company separately. A trade sale is an option but this is unlikely unless Honda is the buyer.

Under their joint model development programme, Rover and Honda are working on a replacement for the Rover 200/400 series and a new small car before the end of the decade.